Fertilizer market consolidation taking shape

Russian metals tycoon, Suleiman Kerimov, is believed to be targeting the fertilizer sector with plans to create the second world largest fertilizer company through a string of mergers and acquisitions.

Kerimov, who currently owns a 25% stake in Silvinit, is also holding talks with at least two more big players in the sector – Belaruskali, the world's third potash fertilizers, and Phosagro, Russia's largest phosphate producer. He is currently believed to be planning to buy a controlling stake in Silvinit, as well as include Uralkali in the move, which would create the world's second largest fertilizer producer behind Canada’s Potash Corp.

Experts from Troika Dialog estimate the capitalization of the joint company at $20 billion, with the annual production reaching11.5 million tones. In a research note they added that PhosAgro would be likely to be a part of the tie up.

“We believe that PhosAgro could indeed be a natural part of a three-way merger with Uralkali and Silvinit, orchestrated by Suleiman Kerimov as the controlling shareholder of Uralkali, the result being a diversified fertilizer holding with strong exposure to both potash and phosphate (similar to PotashCorp and Mosaic).”

They also added that the move was a good opportunity for PhosAgro to realize its plans to go public, being a part of a giant company.

“At the same time, we struggle to find any plausibility behind the idea that PhosAgro will act as a white knight for Silvinit, which is currently understood to be deeply involved in talks with Uralkali regarding the terms of the proposed merger. We doubt that PhosAgro will have the requisite political support to act in this manner and think for now that an amicable three-way deal is much more realistic. PhosAgro recently voiced its IPO plans and a merger in the suggested way would also be an elegant way to float the asset.”

According to Andrei Sharonov, the former deputy economy minister and managing director of Troika Dialog, talking to the Financial Times, Russia's Government was most likely to support the deal, as creation of a strong worldwide giant would help it to diversify away from oil and gas.

“Ideologically the state is interested in the appearance of a national champion in the sector that can compete on a global level.”